Czech cbanker-Int.rates levels are correct-report

...(CNB) Vice-Governor Ludek Niedermayer was quoted on Friday as saying in an interview with the Bloomberg news agency.

"Right now, I think interest rates are where they should be," Niedermayer was quoted as saying, adding this "opens the possibility of a rate movement in both directions."

The vice-governor, generally seen leaning towards hawkish views, was reported to have said inflation risks had increased "slightly" after the crown's 2.4 percent drop against the euro this year and the economy seemed expanding faster than expected.

"Should the weaker exchange rate persist, it will push the forecast upwards, however at the same time it's reality that inflation is very low and we do not see any indications that it is set to quickly climb to higher levels," said Niedermayer.

Markets showed no visible reaction. Niedermayer's remarks largely confirmed investors' perceptions that interest rates will stay on hold in the coming months before heading higher as price growth lags the CNB's inflation goal.

Inflation ran at 1.5 percent in February, below the 2 percent floor of the tolerance band of the CNB's target with a 3 percent mid-point. That has helped cement investors' outlook for a delay in policy tightening until at least the summer.

"I identify certain pro-inflationary risks and I also acknowledge the fact that we are well below our target, which is also doubtlessly an important factor," Niedermayer was quoted as telling the agency.

"It is necessary to be very careful with over-estimating demand-driven pressures because of our past experience."

The key policy repo rate has since held at 2.5 percent, the lowest level in the European Union and a record 125 basis points below the euro zone equivalent, following 75 basis points worth of tightening between October 2005 and September 2006.